Fiscal deficit is not just a financial number

Is sustained high fiscal deficit just a financial number which the government needs to bridge? Or does it signify something worse?

India is running a high fiscal deficit which means government expenses are far higher than government revenues. Is this a benign state of affairs? Or does high deficit force the government to do things that are undesirable? The deficit is bridged by borrowing money from the market or printing new money, which the government can then spend. There is a limited pool of capital (our savings) which both the government and private sector can tap into and thus are competitors in that sense. Money printing is government’s temporary way out of tight financial situations. Fiscal deficit can also be bridged by reducing expenditure (rarely happens) or increased revenue collection by the government. What is the fallout of any of the means to bridge the fiscal gap? Consider these factors:


  • Deficit and Corruption: We have all heard and read about the scams and the quantum involved in each of them, over the last few years. Is it just a coincidence that these huge numbers have come about in a period of sustained high FD accompanied by money printing?


  • Print Money to remove the stain of corruption: But once the “print new money” button is pressed, the cost of corruption/mishandling seems low to the people/authorities responsible for the (over/mis)expenditure. It incentivises corruption and lethargy both. And, of course, creates longer term problems for future generations.


  • Demands by Revenue Dept: High deficit forces the Govt to impose stiff revenue targets on the revenue departments in a slowing economy and that’s where the problem starts, or at least it seems so. Of late, various tax departments of the Govt have been really active. Vodafone, Shell, Nokia and others have been targeted. It does look like Indian businesses, big or small, have had to spend much more time and money dealing with various revenue departments in the last few years. India has an image of not being business-friendly. The question is not whether departments are right or wrong in individual cases, but that they may reflect a basic trend of excesses by the department. Is it just a coincidence that tax authorities’ hyper-activity has made doing business even more difficult just when we are running and sustaining a high deficit?


  • Gold Imports: Govt has held gold imports responsible for India’s problems on the external front. While Indians have a gold-buying history for ages, why is it that imports which were US$10-20bn per annum from FY2005-2009 suddenly spurted after that to levels closer to US$50bn per annum? Various explanations from “black money generation” to “hedge against inflation” are used to explain the phenomenal rise in gold imports into India. Again strangely enough, huge gold buying happened just when Govt had gone overboard with its spending.


  • Populist Schemes: High deficit would generally mean large subsidies or huge populist schemes. Most of them have huge leakages and create big black markets. Funds generated in black markets obviously go to wrong hands. All activities require funds and anti-social elements are no different.


  • Religious & Emotional Appeals: Money-printing causes price rise, which clearly affects the lower strata of the society, more than the upper ones. The have-nots find it more and more difficult to fulfil their aspirations and add “manpower” to the growing “money” power created by the black markets. Is it just a coincidence that effectiveness of religion as a tool to mobilise people goes up dramatically in these kinds of times?


  • Asset Inflation: Land prices have shot through the roof and “black money” component within that is at very elevated levels, which has created its own mafia kind of eco-system. Crime in various forms has made it to the headlines much more often in the last few years than before, certainly more than in 2004-2008.


So, is sustained high Fiscal Deficit just a financial number which the Govt needs to bridge? Or is it more like a massive corroding force which percolates through the system from the top and keeps eating away at it, in many ways, weakening it with each passing day? We would like to hear your views.



Amit Singhai

4 years ago

True to a certain extend. Its largely on the set up we have built after independence with so many options to create opportunity for black market or like wise.
One thing leads to another and government need to balance both sides.
Though there is no substantial effort to reduce cost or optimize resources, which is critical in this scenario, we have learnt to live with it.

"Yada Yada Hi Dharmasya Glanirva Bhavathi Bharatha, Abhyuthanam Adharmaysya Tadatmanam Srijami Aham". You never know - the time has come.

Raghvendra Kedia

4 years ago

Printing money is de-valuing the currency and hurting industrial imports. Increasing taxes are killing the urge to earn / do business. New set of rules occupy the bandwidth of all corporates closer to the tax submission deadlines.

Good viewpoints simplying the socio-political-economic aspects bringing in the loop the failures of the Government on various fronts.

Bank unions defer 25th September strike

Following discussions between AIBEA, finance ministry, SBI and IBA, the unions have decided to defer their 25th September strike across the country

The All India Bank Employees Association (AIBEA) and the Bank Employees Federation of India have deferred their all-India bank strike on 25th September following a clarification from the union government and State Bank of India (SBI). According to AIBEA, the government and SBI clarified that no decision has been taken on merger of public sector banks (PSBs) or associate banks at present.


Chief Labour Commissioner (CLC) had convened a meeting between the unions, Indian Bank's Association (IBA), SBI and the Finance Ministry. During the meeting, AIBEA said it explained reasons for the strike call. "We also submitted why licences should not be given to corporate houses to start their own Banks. We also expressed our protest against the frequent utterances in the press about possible merger of Public Sector Banks, as also Associate Banks with SBI. We also demanded that the Associate Banks be de-linked from SBI and made independent Banks so that they can progress better," AIBEA said in a statement.


During the meeting, IBA stated that all these issues are of policy nature and hence they have no jurisdiction over the same. The SBI representative stated that even though there have been proposals before them, no decision has been taken at present for closure or merger of associate banks. The government representative also clarified that no proposal for merger of PSBs or merger of any associate bank with SBI has been received by them.


As regards service conditions of employees of associate banks, IBA stated that the same would be governed by the Bipartite Settlement and no unilateral imposition of any service conditions.


Following the clarifications from IBA, SBI and finance ministry, the bank unions decided to defer its strike.


The 25th September strike call was given by bank unions to protest against the government’s proposal to effect mergers among public sector banks. They are also against the merger of associate banks with SBI.




4 years ago

Welcome, yet temporary reprieve for the hapless banking public ! The unions may strike again catching the public unawares.

The $13 test that saved my baby’s life. Why isn’t it required for every newborn?

Dozens of babies die every year because hospitals do not perform a simple test that detects congenital heart defects. Seventeen states have yet to require the exam for newborns

On July 10, my wife gave birth to a seemingly healthy baby boy with slate-blue eyes and peach-fuzz hair. The pregnancy was without complications. The delivery itself lasted all of 12 minutes. After a couple of days at Greenwich Hospital in Connecticut, we were packing up when a paediatric cardiologist came into the room.

We would not be going home, she told us. Our son had a narrowing of the aorta and would have to be transferred to the neonatal intensive care unit at NewYork-Presbyterian Hospital at Columbia, where he would need heart surgery.

It turned out that our son was among the first in Connecticut whose lives may have been saved by a new state law that requires all newborns to be screened for congenital heart defects.

It was just by chance that we were in Connecticut to begin with. We live in New York, where such tests will not be required until next year. But our doctors were affiliated with a hospital just over the border, where the law took effect Jan. 1.

As we later learned, congenital heart problems are the most common type of birth defect in the United States. The Centers for Disease Control and Prevention estimate that about one in 555 newborns have a critical congenital heart defect that usually requires surgery in the first year of life.

Many cases are caught in prenatal ultrasounds or routine newborn exams. But as many as 1,500 babies leave American hospitals each year with undetected critical congenital heart defects, the C.D.C. has estimated.

Typically, these babies turn blue and struggle to breathe within the first few weeks of life.
They are taken to hospitals, often in poor condition, making it harder to operate on them.
By then, they may have suffered significant damage to the heart or brain. Researchers estimate that dozens of babies die each year because of undiagnosed heart problems.

The new screening is recommended by the United States Department of Health and Human Services, the American Heart Association and the American Academy of Pediatrics. Yet more than a dozen states — including populous ones like Massachusetts, Pennsylvania, Florida, Georgia, Wisconsin and Washington — do not yet require it.

The patchy adoption of the heart screening, known as the pulse oximetry test, highlights larger questions about public health and why good ideas in medicine take so long to spread and when we should legislate clinical practice.

Newborns are already screened for hearing loss and dozens of disorders using blood drawn from the heel. The heart test is even less invasive: light sensors attached to the hand and foot measure oxygen levels in the baby’s blood. This can cost as little as 52 cents per child.

Our son’s heart defect was a coarctation of the aorta, a narrowing of the body’s largest artery. This made it difficult for blood to reach the lower part of his body, which meant that the left side of his heart had to pump harder.

In the hospital, though, he appeared completely healthy and normal because of an extra vessel that newborns have to help blood flow in utero. But that vessel closes shortly after birth, sometimes revealing hidden heart problems only after parents bring their babies home.

Depending on the heart defect, the onset of symptoms can be sudden.

This is what happened to Samantha Lyn Stone, who was born in Suffern, N.Y., in 2002.
A photograph taken the day before she died shows a wide-eyed baby girl lying next to a stuffed giraffe. The next morning, her mother, Patti, told me, she was wiping Samantha’s face when she heard a gurgle from the baby’s chest.

Before her eyes, Samantha was turning blue. Blood began to spill from her mouth. Ms. Stone dialed 911, and minutes later, a doctor who heard the call over a radio was there performing CPR. Samantha went to one hospital and was flown to another.

But the damage was irreparable. Samantha had gone 45 minutes without oxygen: She lapsed into a coma and died six days later.

It wasn’t until several years later that Ms. Stone learned about the pulse oximetry test. “This could have saved my daughter,” she told me. “There is no parent that should ever have to go through what I went through.”

Pulse oximetry is not a costly, exotic procedure. Most hospitals already have oximeters and use them to monitor infants who suffer complications. You can buy one at Walmart for $29.88.

A recent study in New Jersey, the first state to implement the screening, estimated that the test cost $13.50 in equipment costs and nursing time. If hospitals use reusable sensors similar to those found on blood-pressure cuffs, the test could cost roughly fifty cents.

As medical technology advances, few screenings will be so cheap or simple. Recent years have seen controversy over prostate cancer and mammography screenings. Medical ethicists have to weigh the costs of each program and the agony caused by a false positive against the lives saved.

But with pulse oximetry, the false positive rate is less than 0.2 percent — lower than is seen for screenings newborns already get. The follow-up test is usually a noninvasive echocardiogram, or an ultrasound of the heart. A federal advisory committee came down in favor — three years ago.

“There’s really no question, scientifically, this is a good idea,” said Darshak Sanghavi, a pediatric cardiologist and a fellow at the Brookings Institution. “The issue is, how do we change culture?”

Opposition has taken two forms. One is from doctors who believe policy makers shouldn’t interfere with how medical professionals do their jobs. The other is from smaller hospitals, which worry about access to echocardiograms and the costs of unnecessary transfers.

These concerns can be addressed fairly easily. Nurses in New Jersey and elsewhere have been able to work the test into their normal routines. A rural hospital should already have a protocol to transfer a newborn in serious condition. If Alaska can do it, less remote states can, too.

But this is not simply a rural health care problem. Cardiologists and neonatologists I’ve spoken with said they knew of hospitals in New York City, Boston and metropolitan Atlanta that weren’t screening newborns for heart defects.

“It’s completely the luck of the draw of where you deliver,” said Annamarie Saarinen, who has pushed for the screening since her daughter narrowly avoided leaving the hospital with an undetected heart defect.

Fortunately, our son’s condition was also caught and corrected. The only lasting effects are a three-inch scar on his side and checkups with a cardiologist. He will live a normal life. He will be able to play sports and climb things he’s not supposed to.

Shouldn’t every baby have that chance?



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